A hybrid alt-fi play for income investors
This mature alternative-finance property firm is not without risks, says David Stevenson, but could still be worth tucking away for the long term.
This mature alternative-finance property firm is not without risks, but could still be worth tucking away for the long term.
Alongside the usual peer-to-peer (P2P) lenders and crowdfunding platforms, there are many conventional providers of funding in the alternative-finance sector. Some of the most interesting avoid P2P as a source of funding altogether and prefer to use their own balance sheets. One such outfit is property investment company Urban Exposure (Aim: UEX).
Urban Exposure is a respected player in a rapidly expanding area. It lends to capital-starved small and medium-sized housebuilders, many of which operate in the student accommodation and private rented sectors. Since it started lending in 2005, Urban Exposure has originated just under £700m worth of loans with an internal rate of return of 16% a year and no losses.
It listed on the London Stock Exchange a few months ago with a first-of-a-kind proposition for stockmarket investors, raising almost £150m along the way.It is something of a hybrid entity, lending out its own money, but also running asset-management mandates for much bigger investors such as Starwood, LaSalle, Lloyds and Barclays. So it looks like a fund, but is also a profit-making, growth-orientated specialist financials business.
Still a pressing need for housing
The prospect of property prices drifting lower over the next few years might curb enthusiasm (and margins) in the new-build sector, but there is still a pressing need for extra accommodation. Housebuilders are operating at full capacity and there's little sign that the government will fill the gap via social housing.
Crucially, Urban Exposure is increasingly featuring developments outside of the south of England often in the midlands and the north. One typical development is in Birmingham: with a £31m gross development value, 170 units are being built near the city centre with a 63% loan-to-value ratio, involving a loan of £19.5m.
According to house brokers Liberum, most Urban Exposure loans carry an interest rate of around 10%. In addition to the money it raised at its initial public offering, the group has also just secured £144m of debt at an interest rate of around 3.5% (the rate is not fixed, so it could climb over time).
The net profit from lending out at higher margins plus all the inevitable lending fees should filter through the profit-and-loss account and produce a dividend yield currently around 3.8% of 5.4%, according to Liberum. That projected 5.4% yield would be higher than the yields paid out by some existing online alternative lenders, and there is always the chance that the shares could benefit from a re-rating before too long: Liberum reckons that in 2019, Urban Exposure will be on a price/earnings ratio of just 6.5.
Plenty of scope to scale up
Most competition for now comes from challenger banks and P2P lenders who tend to focus on sub-£10m projects, whereas Urban Exposure now has thescale to lend to bigger developers. What's more, there is the possibility that the firm will be able to grow its asset-management business, lending out other people's money and making a tidy packet from asset-manager fees.
This company looks and feels like a grown-up alternative-finance equity play. It obviously comes with some big risks, including rising interest rates, future market downturns and growing competition, but it could be one to tuck away for the long term.
News bytes a new sandpit for fintech firms to play in
Financial regulators and related organisations from around the world have come together to create the Global Financial Innovation Network, a global financial "sandbox", which they hope will encourage innovation in financial services, reports Caroline Binham in the Financial Times. The UK's Financial Conduct Authority (FCA) is involved, along with11 other organisations, including the US Bureau of Consumer Financial Protection, the Hong Kong Monetary Authority, the Australian Securities & Investments Commission and the Dubai Financial Services Authority.
The sandbox should allow fintech companies to try out new products and services across borders, increasing the speed with which new technologies come to market, while at the same time encouraging regulators to co-operate in setting new standards and keeping on top of emerging technologies such as artificial intelligence, cryptocurrencies and distributed ledger technology. The FCA is consulting on the network's aims and objectives.
Property crowdfunding platform Lendy has launched a pair of auto-investment products under the banner "Lendy Wealth", which will allow investors to diversify their investments across multiple properties in a managed portfolio. The Lendy Wealth 365 account offers a return of up to 10% with 365 days' notice, while the Lendy Wealth 60 account offers up to 6% with 60 days' notice. Both accounts require a minimum investment of £50,000. Lendy specialises in bridging and development loans to commercial property developers in England and Wales. It has lent over £400m since its inception in 2012.
Bitcoin fell sharply last week, wiping $9bn off the cryptocurrency's market capitalisation, after the US financial regulator, the Securities and Exchange Commission, delayed adecision to approve a bitcoin exchange-traded fund (ETF). Investment firm VanEck and financial-services company Solid X hope to launch a bitcoin-backed ETF, but the approval decision has now been postponed until 30 September, says Arjun Kharpal on CNBC.
The SEC, which has already rejected two previous bitcoin ETF proposals, said it needed more time to consider its decision. The price of the cryptocurrency fell by 10% on the news. Bitcoin had begun to recover from its 2018 low of $5,800 at the end of June, and soared over $8,300 towards the end of July before losing over 30% of its value. It is currently worth around $6,200.